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Are Big Boys on Track?

Since January this year, the mutual fund industry has witnessed the launch of four funds each of which mopped up in excess of Rs 1,000 crore. A look at their initial performances

Year 2005 has so far been the golden year for the mutual fund industry. While the big ticket investments from investors have set the ball rolling, the soaring markets have ensured that the party continues.

Since January this year, the industry has witnessed the launch of four funds each of which mopped up in excess of Rs 1,000 crore at the time of their launch. Running such a huge fund can be quite a challenging task, especially when you have to build a portfolio from scratch at a time when equity markets are way past all the previous records. Therefore, we decided to take a stock of how these funds have fared over the last few months. Here's what, and about whom we found, and what we did not.

Franklin India Flexicap: If you happen to believe in astrology, then you would agree that the stars could not have been more favourable for the fund at the time of its launch. A launch with the tag of largest equity fund was something unprecedented in the Indian mutual fund industry. But afterwards, the fund's NAV slipped below Rs 10 which raised many eyebrows. People asked, "Will this fund will be able to reproduce the magic that Bluechip and Prima have managed over the last so many years?" But the answer lies in the question itself. It takes years, not days, or months for the magic to happen. And it's too early to compare it with the stalwarts of the industry.

Though these are still early days, the fund has done reasonably well over the last three months, generating returns in excess of 23 per cent. The fund is heavily invested in large-cap stocks, which have accounted for over 76 per cent of the assets on an average during the first four months of its existence. Financial services, automobiles and diversified sectors dominate the portfolio. However, the fund holds a large number of stocks-around 70 stocks since inception. In June 2005, the fund held 69 stocks, of which as many as 21 were in small proportions, each accounting for less than 0.5 per cent of the total assets. Large size of the fund could be a reason for this, since even a minuscule proportion of the total corpus of such a big fund means a sizeable amount to be invested in a relatively less liquid mid-cap stock.

Reliance Equity Opportunities: Yet another very successful launch, the fund is currently the fourth largest diversified equity fund, with assets of Rs 1,698.98 crore. This fund has also maintained a large-cap dominated portfolio so far, though during June 2005, the allocation to large-cap stocks has come below 70 per cent for the first time. The fund seems to be playing quite safe in the wake of soaring equity markets, with more than 15 per cent of assets deployed in call money as on June 30, 2005.

HDFC Premier Multi-Cap: In comparison to the two funds above, this fund maintains a much more concentrated portfolio. As on June 30, 2005, the top three equity holdings constituted 29 per cent of the assets. Also, the fund holds lesser number of shares. The fund comprised of 18 stocks, which together made up for 79.55 per cent of assets. Reverse repo and call money markets are the other avenues where the fund has noteworthy investments of 10.26 and 4.75 per cent, respectively. At the sector level, technology, engineering and financial services figure as the top three sectors. However, technology stocks dominate the portfolio, the sector alone accounting for more than 25 per cent of the assets. Interestingly, this fund is also strongly biased towards the large-cap stocks. During April-June 2005, large-caps, on an average have accounted for more than 80 per cent of the assets.

Fidelity Equity Fund: Fidelity Investments launched its maiden fund, Fidelity Equity Fund, in April 2005. With an asset base of Rs 1,959.84 crore, the fund has surpassed Franklin India Flexicap Fund to become the largest equity fund. But we can provide little insights into it, as the fund has declared only its top 10 holdings as on June 30, 2005, which account for around 39 per cent of the portfolio. The AMC has decided to run the fund under a thick, opaque cover, which will be unveiled only once in six months. Therefore, you will have to wait for six months to get its complete portfolio.